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I know headquarters wants us to add that new product line said Dell Havasi, manager of Billings Company's Office Products Division. But I want to
"I know headquarters wants us to add that new product line said Dell Havasi, manager of Billings Company's Office Products Division. "But I want to see the numbers before l make any move. Our division's return on investment (RO) has led the company for three years, and l don't want any letdown Billings Company is a decentralized wholesaler with five autonomous divisions. The divisions are evaluated on the basis of ROI, with year-end bonuses given to the divisional managers who have the highest Rols. Operating results for the company's Office Products Division for the most recent year are given below: 22,045,000 Sales 13,882,000 Variable expenses Contribution margin 8,163,000 Fixed expenses 6,070,000 2,093,000 Net operating income 5,500,000 Divisional operating assets The company had an overall return on investment (RO) of 16.00% last year (considering all divisions). The Office Products Division has an opportunity to add a new product line that would require an additional investment in operating assets of $2,501,500. The cost and revenue characteristics of the new product line per year would be: 9,500,000 Sales Variable expenses 65% of sales 2,574,100 Fixed expenses
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